Green Technology Commercialization

Transcription

1 Green Technology Commercialization An Analysis of the EPA s SBIR Program Nick Worcester William Polytechnic Forster (ME) Institute Stephen Johnston (CHE) Nicholas LaJeunesse (ECE) Angelica Zawada (MGE & PSY)

2 Green Technology Commercialization An Analysis of the EPA s SBIR Program An Interactive Qualifying Project Report Submitted to the Faculty of the WORCESTER POLYTECHNIC INSTITUTE In partial fulfillment of the requirements for the Degree of Bachelor of Science Sponsoring Agency: United States Environmental Protection Agency Submitted to: On-Site Liaison: April Richards, Small Business Innovation Research Program Manager Project Advisor: James Hanlan, WPI Professor Project Co-advisor: David DiBiasio, WPI Professor Submitted by: Will Forster Stephen Johnston Nicholas LaJeunesse Angelica Zawada This report represents work of WPI undergraduate students submitted to the faculty as Abstract evidence of a degree requirement. WPI routinely publishes these reports on its web site without editorial or peer review. For Abstract more information about the projects program at WPI, see i

3 Abstract The purpose of this project was to identify how the EPA SBIR program can effectively utilize its limited funding by selecting and supporting small green business entrepreneurs with the greatest potential for bringing products to market. We interviewed representatives both from companies that successfully and unsuccessfully commercialized their technologies. Our team additionally contacted managers of similar programs, including other federal agencies SBIR programs, a green technology accelerator, and a venture capitalist company. We also distributed an electronic questionnaire to principal investigators. From the collected data, we developed a list of recommendations for the EPA s SBIR selection and support processes. ii

4 Executive Summary The United States Environmental Protection Agency (EPA) encourages green technology companies to become successful through their Small Business Innovation Research (SBIR) program. The EPA wants to find ways to improve this program s selection and assistance processes. Priority environmental issues, ranging from water and air pollution to waste treatment, can be addressed and solved through the aid of innovative green technologies. The EPA SBIR program is a program that entrepreneurs can utilize to help get their technology to market and thus make an impact on protecting and preserving the environment. However, limited funding resources restrict the number of businesses that the EPA can select for participation in the program. Not all funded companies are successful in developing and commercializing their technology. Thus, it is important to research potential improvements to the program s selection process in order to make investments that will succeed in bringing environmentally healthy products to the marketplace. The goal of our research was to identify traits of successful green technology entrepreneurs and to develop recommendations on how the program can select and support companies that exhibit characteristics of successful firms. To achieve our goal we outlined four key objectives: Analyze EPA SBIR funded businesses o Identify why these businesses have been successful or unsuccessful in commercializing a funded product Determine forms of support that small green technology businesses need Evaluate internal EPA SBIR program functions iii

5 Identify effective selection criteria and support methods from similar programs o Recommend possible application of these methods at the EPA. To achieve these objectives, we used a questionnaire and interviews. Our questionnaire was developed to gather information from a broad scope of companies and give feedback on the SBIR program as a whole. We interviewed representatives from companies that have successfully commercialized their technologies in order to identify strategies that can be used as a model for other businesses to follow. We also examined less successful business ventures funded through the EPA SBIR program to reveal the challenges companies face when developing and commercializing their technologies. Data from both successful and unsuccessful proposals provided insight from two different perspectives regarding how to be successful and how to avoid failure. Beyond talking to company representatives, we interviewed managers of similar programs, including other federal agencies SBIR programs, a green technology accelerator, and a venture capitalist company. From these interviews, we were able to identify unique and effective approaches currently being utilized to select and support entrepreneurs. By analyzing the data from our interviews, we were able to determine some traits and practices of successful green technology entrepreneurs. Based on interviews with our sample group of successful companies, we determined that it is crucial for green technology entrepreneurs to understand the market prior to development. The importance of creating a technology that fills a gap in the marketplace is further reinforced by interviews with a venture capitalist and a representative of a green technology accelerator organization. Preemptively understanding the needs of a market by locating potential end users and business partners is essential for founding a green technology company. Locating outside sources of money in advance helps businesses to get supplemental iv

6 funding to fully develop and commercialize their products. Interview data revealed that some of the less successful companies did not do this to the same extent as other successful companies, which may have contributed to their proposals failure. Reasons for not being able to gain third party investment included having a technology that was not unique in the marketplace and did not better replace an existing technology. A representative of a green technology accelerator program revealed that many entrepreneurs are technically oriented but lack the communication skills to effectively market their product. SBIR program managers and representatives of successful companies expressed similar sentiments in our interviews with them; thus, successful entrepreneurs often have business backgrounds and are well versed in communicating the merit of their product. Other interview and questionnaire data were used to determine unique and effective methods of selection and support that can be implemented at the EPA. All similar programs to the EPA s SBIR program whose representatives we interviewed had an electronic submission requirement to ease the burden of a paper system. The NSF SBIR program manager described how their program uses their own software to conduct all of their business. We recommend an online tool similar to the NSF s to be implemented and, if this is not viable, some form of an electronic application process. Another recommendation to the EPA is to adopt a video requirement. To better select entrepreneurs for funding, the Department of Education s SBIR program uses video submissions of funded prototypes to aid external reviewers in evaluating proposals. Based on interview data, these videos have had a positive impact on the process for reviewers. To help green technology companies develop and commercialize their product, a representative of an accelerator program described how their organization v

7 provides a business and subject matter mentoring program and facilitates networking opportunities. Questionnaire and interview data showed that companies would be interested in an optional mentoring program. We recommend looking into sponsoring and partnering with accelerators and similar programs to aid entrepreneurs in their business ventures. Data additionally showed that the EPA could better market funded technologies. The Department of Education uses videos to showcase invested products on their website and has described its effectiveness for their program through interviews. It is recommended that the EPA adopt this marketing tactic to assist their awardees. This report will describe the background research conducted, our methods, results and eventual recommendations. Although not all of our recommendations will be instituted, we encourage the EPA to utilize them for future use and research areas. vi

8 Acknowledgements First and foremost, we would like to thank our project liaison, April Richards, for taking the time to meet with us, guiding us through our project, and supplying us with contacts for interviews and our questionnaire. We also appreciate the feedback given to us from all other EPA employees. Our advisors, James Hanlan and David DiBiasio, deserve thanks as well for their support while working in Washington, D.C., as well as their guidance prior to departure. We would like to extend thanks to the government employees outside the EPA who interviewed with us as well. Finally, we would like to thank every company or organization representative who took the time to interview with us or fill out our questionnaire. These responses were the core of our project, and we could not have completed any of our objectives in their absence. vii

9 Authorship Abstract: Written by Stephen Johnston; Edited by: William Forster Executive Summary: Written by Nick LaJeunesse and William Forster; Edited by Stephen Johnston and Angelica Zawada Chapter 1: Introduction: Written by William Forster and Angelica Zawada; Edited by Stephen Johnston and Nick LaJeunesse Chapter 2: Background: Written by Nick LaJeunesse, Stephen Johnston and Angelica Zawada; Edited by William Forster, Nick LaJeunesse, Stephen Johnston and Angelica Zawada. Chapter 3: Methods: Written by Stephen Johnston and Angelica Zawada; Edited by Nick LaJeunesse and William Forster Chapter 4: Results and Analysis: Written by Stephen Johnston and Angelica Zawada; Edited by Nick LaJeunesse and William Forster Chapter 5: Conclusions and Recommendations: Written by Nick LaJeunesse and William Forster; Edited by Stephen Johnston and Angelica Zawada All four members reviewed and edited each section and contributed to the Appendices. viii

10 Table of Contents Title Page... i Abstract... ii Executive Summary... iii Acknowledgements... vii Authorship.... viii Table of Contents... ix List of Figures... xi List of Tables... xi 1. Introduction Background Green Technology Environmental Protection Agency and its Mission Small Business Innovation Research Program EPA SBIR Program Other SBIR Programs Commercialization Entrepreneurial Skills Previous Studies on EPA SBIR Program Summary Methodology Identifying EPA SBIR Companies to Target for Communication Identifying Successful Business Ventures Funded by the EPA SBIR Identifying Companies with Unsuccessful EPA SBIR Proposals Interviews with Company Representatives Interviews with Successful EPA SBIR Funded Business Representatives Interviews with Representatives from Companies with Unsuccessful Proposals Interviews with Successful Green Technology Company Representatives Electronically Distributed Questionnaire of EPA SBIR Companies Comparison of EPA SBIR program to Similar Programs Interview with Executive from Clean Tech Open Interviews with non-epa SBIR personnel Interviews with Venture Capitalist Summary Results Identified Successful Business Ventures Funded by the EPA SBIR Identified Companies with Unsuccessful EPA SBIR Proposals Data from Interviews with Company Representatives ix

11 Interviews with Successful EPA SBIR Funded Business Representatives Interviews with Representatives from Companies with Unsuccessful Proposals Interviews with Non-EPA SBIR Funded Successful Green Technology Company Representatives Comparison of Interview data from all Interviewed Company Representatives Data from Interviews with Similar Programs National Science Foundation SBIR Department of Energy SBIR Department of Education SBIR Cleantech Open Venture Capitalists Determination of Effective Methods Electronically Distributed Questionnaire of EPA SBIR Funded Companies Analysis of Questionnaire Data Response Rate Analysis Limitations of Research and Future Applications Topics for Future Research Recommendations and Conclusions Application Process Peer Review Process Support Conclusion References Appendices Appendix A: Questionnaire Appendix B: Interview Protocol for Successful Companies funded by EPA SBIR Appendix C: Interview Protocol for Companies with Unsuccessful EPA SBIR Proposals Appendix D: Interview Protocol for Successful Green Technology Companies Appendix E: Interview Protocol for NSF SBIR Representative Appendix F: Interview Protocol for DOE SBIR Representative Appendix G: Interview Protocol for Department of Education SBIR Representative Appendix H: Interview Protocol For (Non-EPA SBIR Funded) Green Technology Companies...81 Appendix I: Interview Protocol for Subject Matter Expert from Cleantech Open Appendix J: Interview Protocol for Venture Capitalists Appendix K: Phone Interview with Norton Kaplan Appendix L: List of Companies for Questionnaire Contact who Received EPA SBIR Funding from Appendix M: Successful SBIR Funded Companies Interview Notes Appendix N: Companies with Unsuccessful SBIR Proposals Interview Notes Appendix O: Successful Non-SBIR-Funded Green Technology Companies Interview Notes Appendix P: Data from Interview with NSF Representative x

12 Appendix Q: Data from Interview with DOE Representative Appendix R: Data from Interview with Department of Education Representative Appendix S: Interview with Venture Capitalist Appendix T: Questionnaire Data Appendix U: Data from Interview With Josh Greene From Cleantech Open List of Figures Figure 1: EPA Structural Organization Chart...6 Figure 2: Comparison of SBIR Award Sizes...33 Figure 3: Pie Chart showing where applicants heard about the EPA SBIR Program...48 Figure 4: Rating Distribution for Feedback on Peer Reviews...49 Figure 5: Was Foresight Helpful to Your Company?...50 List of Tables Table 1: Successful EPA SBIR Funded Green Technology Companies...29 Table 2: Distinctive Characteristics of Companies by Category...35 Table 3: Unique Methods of Selection and Support Used By other Organizations...45 Table 4: Categorization of Recommendations...54 xi

13 1. Introduction The degradation of the environment as a byproduct of industrial processes and industrialization is a key issue in today s society. However, it was not until 1970 that the majority of Americans were aware of the effect of pollution on the environment (EPA, 2013g). In 1962, Rachel Carson, the author of Silent Spring, raised public awareness of this issue in her expose of the unintended side effects of DDT by revealing how the environment is harmed by human activity. As public knowledge increased, the desire to prevent and remediate the effects of pollution became a growing concern for society. Today, both the Federal Government and the private sector research ways to address this problem. Government legislation has been implemented, limiting the amount of pollution that can be emitted into the environment. This created a space in the market for companies to be founded with the mission to convert environmental research into commercially viable green technology products. Many of these companies have innovative ideas that could have a positive impact on the environment, but lack the funding they need to get those technologies to market. The United States Environmental Protection Agency (2013c) funds green technology companies through their Small Business Innovation Research (SBIR) program. Since the program s establishment in 1983, the EPA has awarded over $100 million to companies for research and development of their technologies (SBIR 2013b). The goal of the SBIR program is to create commercial products arising out of government funded scientific research. Ideally, all EPA SBIR funded businesses would be profitable, and their products would make a significant impact on the environment. However, due to the high-risk nature of these investments and a lack of adequate funding, the program cannot realistically reach that goal (NSF, 2013b). In an effort to improve 1

14 their SBIR program, the EPA would like to know what factors cause program funded businesses to be either successful or unsuccessful. Previous research on potential EPA SBIR program improvements has been conducted within the agency. An Interactive Qualifying Project (IQP) done by WPI students (Brookes et al., 2006) focused on potential improvements to the SBIR program. Through the use of interviews, this research determined that the amount of funding and commercialization assistance the EPA provides should be increased, and recommended the length of the proposal review process be shortened. However, this group did not look at the factors that make a green entrepreneur successful in industry nor did the group s work evaluate the entrepreneurs who were unsuccessful in commercializing their product. Another study was conducted by Foresight Science and Technology, an external commercialization assistance company contracted by the EPA. This research included a survey of EPA SBIR funded companies focusing on the effectiveness of their commercialization support in Phase I and II (Norton Kaplan, Survey, 2013). Unfortunately, the Foresight team did not ask questions about the EPA SBIR program as a whole. Lastly, a survey conducted by a fellow from the American Association for the Advancement of Science (AAAS) was conducted in 2007 focusing on the efficiency of the EPA SBIR program (Yee San Su, survey, 2008). The survey identified the success of the program from an economic standpoint. The study did not analyze the perception of the EPA SBIR program from the perspective of funded companies and the information does not reflect the current program. These previous studies did not focus on the factors that make green entrepreneurs successful nor on the opinion of the program from the perspective of funded companies. Identifying the qualities that make entrepreneurs successful is useful to the 2

15 EPA in order to enable the agency to better select companies that have a higher probability of commercializing their technology. Also, gathering information about the companies experience with the program gives valuable input on how the EPA can improve the efficacy of their assistance. The goals of this project are to determine successful traits of green entrepreneurs and to recommend ways in which the EPA can enhance the effectiveness of its SBIR program by better selecting and supporting companies those companies likely to successfully bring green technology to the marketplace. Our first objective aims to identify successful companies that have gone through the SBIR program. To accomplish this, we defined success and determined the business practices that lead to it. To get a different perspective, we interviewed representatives from companies that did not receive Phase II funding. Using that data, we developed recommendations on how to better select and support green technology companies and gathered information to reveal traits of successful green technology entrepreneurs. Through the use of interviews, archival research and a questionnaire, we collected qualitative and quantitative data to achieve our objectives. The recommendations we provided helped the EPA to identify areas where there is room for improvement. Maximizing the effectiveness of their SBIR program by creating a higher rate of commercialization success for small green technology businesses supports the EPA s mission of protecting human health and the environment. 3

16 2. Background Competing as a small business in the green technology market is a challenging endeavor. To help explain the process of founding and maintaining a small, environmentally oriented business, in the sections that follow we will discuss: green technology, the EPA and its mission, the SBIR program, the EPA SBIR program, other SBIR programs, commercialization, skills of entrepreneurship and previous research conducted on the EPA SBIR program. 2.1 Green Technology Green technology is a technology that offers a more environmentally benign approach compared to an existing technology (NSCEP, 2006, p. 79). Thus, green technology is a term for a wide range of environmental technologies that aim to prevent, monitor and reduce pollutants. Examples include wet scrubbers, filtration devices, fuel cells, clean manufacturing techniques and contaminant monitoring devices (EPA, 2000). These technologies try to guide society towards environmental sustainability. Preventing pollutants from entering the environment is the ideal situation; however, this is not always possible. Some other techniques for dealing with pollution are reuse, recycling, treatment, disposal methods and monitoring (EPA 2013f). There is a national interest in the development of advanced green technologies that address priority environmental issues (EPA, 2013d). President Obama expressed the importance of environmental technology in his statement, The choice we face is not between saving our environment and saving our economy - it s a choice between prosperity and decline (Office of the Press Secretary, 2009, p. 1). Shuman Talukdar, Head of Business Development at Mojave Networks, et al. (2010) suggests that green technology can help solve the nation s environmental 4

17 problems. One agency that focuses on solving these problems through the use of green technology is the Environmental Protection Agency (EPA). 2.2 Environmental Protection Agency and its Mission The EPA (2010) is a government agency that was established in 1970 to consolidate federal research, monitoring, and enforcement activities related to the conservation of the environment into one agency. Its mission, to protect human health and the environment, is carried out by a workforce of approximately 17,000 employees across 12 department offices and 10 regional offices in the United States (EPA, 2013a). Each departmental office is in charge of a different problem concerning the environment, as can be seen in Figure 1, below. Environmental Protection Agency Office of Research and Development (ORD) 11 other offices National Exposure Research Lab (NERL) National Center for Environmental Research (NCER) National Health and Environmental Effects Research Lab (NHEERL) National Risk Management Research Lab (NRMRL) Peer Review Division Technology and Engineering Division Research Support Division STAR and Other Programs Small Business Innovative Research (SBIR) 5

18 Figure 1: EPA structural organizational chart (EPA, 2013a, EPA Organization Chart) The EPA s structure allows their direction as an agency to be split into smaller divisions, easing progress toward their goals for environmental protection. The EPA s (2010) strategic goals are: 1: Taking Action on Climate Change and Improving Air Quality 2: Protecting America s Waters 3: Cleaning Up Communities and Advancing Sustainable Development 4: Ensuring the Safety of Chemicals and Preventing Pollution 5: Enforcing Environmental Laws In order to achieve these goals, the EPA is divided into offices that have a more focused scope. The Office of Research and Development (ORD) provides the research to develop sustainable solutions to the nation's highest priority scientific needs (EPA, 2013a). Their mission is to conduct leading-edge research and foster the sound use of science and technology to fulfill EPA s mission to protect human health and safeguard the natural environment (EPA, 2001). Three national laboratories, four national centers and two offices located in 14 facilities across the country comprise the ORD and carry out the research (EPA, 2013a). One research center within the ORD that pertains specifically to our project is the National Center for Research and Development (NCER). Their mission is to support highquality research by the nation s leading scientists and engineers that will improve the scientific basis for national environmental decisions (EPA, 2013b, What We Do). NCER focuses their research on exposure, effects, risk assessment, and risk management through competitions for grants, fellowships, and innovative small business research contracts. This focus is shared 6

19 among the five divisions that make up the center: Health Research and Fellowships; Applied Science; Technology and Engineering; Peer Review; and Research and Support. Our team worked under the Technology and Engineering Division of NCER. Some of the projects managed by NCER are: Science to Achieve Results (STAR) Grant and Fellowship Programs Greater Research Opportunities (GRO) Fellowship Program American Association for the Advancement of Science (AAAS) Fellowship Program EPA Marshall Scholarship Program People, Prosperity and the Planet (P3) Student Design Competition for Sustainability Small Business Innovation Research (SBIR) Program. The last program, Small Business Innovation Research, pertains directly to our project. We worked in depth within this area under NCER. 2.3 Small Business Innovation Research Program The SBIR (2013a) program provides a way for small businesses to have their innovative ideas funded and commercialized. This program focuses on small businesses because recent studies have shown that innovative technologies were developed more frequently by smaller business than larger ones (Block and Keller, 2008). In general, smaller businesses are more willing to take risks on new technologies, while larger ones tend to focus research funding on improving existing technologies. Thus, the government decided to fund innovation through small businesses, and has been successful overall in this regard. 7

20 The SBIR program follows the mission to support scientific excellence and technological innovation through the investment of Federal research funds in critical American priorities to build a strong national economy (SBIR Mission and Program Goals). Investments are made in businesses that have fewer than 500 employees and have at least 51% American ownership. Currently, 11 federal agencies with extramural research budgets of over 100 million dollars are mandated to set 2.5% of their funding aside for their respective SBIR programs. There is flexibility for each agency to mold its program to fit its needs. However, all agencies have a similar phased approach in their SBIR program. Phase I awards are used for initial research and development costs of the technology that the business is trying to commercialize (SBIR, 2013). The scientific value, technical feasibility and commercialization potential of technology is explored in a proposal to a federal SBIR program. External and internal evaluators review the proposals to determine which businesses will use capital funding effectively. Typically, awards will not exceed $150,000 and will have contract lengths of 6 months. Additional funding is awarded if the first phase is considered successful and the company s Phase II proposal is accepted. The aim of Phase II is to further develop a commercial product out of the initial research and development from Phase I (SBIR, 2013a). Awards are only given to companies that have undergone Phase I successfully and have submitted a Phase II proposal outlining a plan to carry out their commercialization efforts. Awards typically do not exceed a total of one million dollars for up to two years. There is no federal funding past Phase II. However, a Phase III SBIR award, focused on receiving capital from private investors, is possible for businesses that wish to continue the commercialization efforts from Phase I and II. 8

21 The three phase SBIR program is reported to be a successful structure. Christopher Wood (2010) of the Boulder County Business Report states, Billions of dollars are tunneled annually to small businesses and nonprofits through these programs, and companies make good use of those funds (p. 30A). The SBIR program has awarded over $33 billion to companies since its development in 1983 (SBIR, 2013a). As a result, over 133,000 awards have been given to companies through the program. Federal funding programs, such as the SBIR, successfully provide opportunities for smaller companies to benefit and expand in a difficult market. 2.4 EPA SBIR Program Small businesses in the environmental sector have the opportunity to receive funding from the EPA s SBIR program (EPA, 2010). The EPA will support development and commercialization of innovative technologies that meet the agency s mission, to protect human health and the environment (Our Mission and What We Do). The SBIR program at the EPA is smaller than other federal programs, but still provides sufficient funding to help small companies continue to develop a technology. The budget for small business funding for fiscal year 2013 is 3.76 million dollars. From this amount, the EPA gives out $80,000 for each Phase I proposal and $300,000 for each Phase II proposal (EPA, 2013c). Also, a $100,000 commercialization option is available to Phase II contract awardees. Companies wishing to receive funding from the EPA (2013d) in any given year must have proposals that relate to one of the topic areas for that year. In 2013, these topic areas were: water; innovation in manufacturing; waste; air quality; and homeland security. The topic of water deals with creating safe and sustainable water for drinking and reuse. Innovation in 9

22 manufacturing deals with developing green materials and green methods for buildings and manufacturing processes. Businesses proposals that fall under the waste category have aspirations for developing technologies that monitor or reduce waste. The topic of air quality refers to technology developed to improve air pollution monitoring and control. Lastly, technologies dealing with wastewater and drinking water disposal, treatment, and decontamination fall into the domain of homeland security. The EPA developed the Technology Continuum, a functional set of steps that takes technology from conception to becoming utilized as a product (U.S.E.P.A. 2013e). The six-stage process is broken down as follows: 1. Research/Proof of Concept: a. Conception of idea b. Demonstration of potential for solving environmental problem 2. Development: a. Prototyping b. Pilot tests are held 3. Demonstration: a. Tests to show range of performance b. Determination of technology s applications and weaknesses 4. Verification: a. Tests and reporting performance 5. Commercialization: a. Implementation of business plans for product 6. Diffusion and Utilization: 10

23 a. Implementation of full scale marketing plans for product The EPA SBIR program s goal is to aid the movement of a worthwhile idea through the continuum, generating a commercial product out of environmental research. The phases of the program align with different areas of the continuum and try to focus their aid on the specific needs of the companies receiving funding. 2.5 Other Agencies SBIR Programs Each federal agency runs their SBIR program differently. The Congressional Committee on Small Business and Entrepreneurship requested a team of researchers, a part of the National Research Council (NRC), to conduct a comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet Federal research and development needs (Wessner, 2008, p. 1). This team of researchers on the NRC s Committee for Capitalizing on Science, Technology, and Innovation assessed the SBIR programs of five federal agencies that make up 96% of SBIR program expenses. The five federal agency programs, in order of program size at the time of the study, were: the Department of Defense (DoD); the National Institutes of Health (NIH); the National Aeronautics and Space Administration (NASA); the Department of Energy (DOE); and the National Science Foundation (NSF). Similar to the EPA, the NSF, DOE, DoD and Department of Education (ED) all fund entrepreneurs in their own way. The NSF was the first government agency that had a grant program only for small businesses (Wessner, 2007). This SBIR program started in Later, others emerged as the Small Business Innovation Development Act was passed in In contrast to most of the research funded by the NSF, this program focuses on research that has commercial applications 11

24 that can potentially transform the market. The NSF SBIR program has had extended success, and this makes it a good example to compare with other SBIR programs. Part of the NSF s success is directly related to the agency s aggressiveness in encouraging early attention to business issues (Wessner, 2007, p. 83). In Phase I, the companies must attend a grantee workshop that has a significant emphasis on developing a powerful commercialization plan. Assistance is provided through two commercialization planning contractors to help the companies develop their direction for product development and their business plan. Similarly, the NSF requires applicants for Phase II funding to develop strong commercially focused partnerships that will drive successful product and technology commercialization activity. Bringing a product to market is a difficult process, and NSF seeks to provide funding to help minimize the risk of the technology to facilitate commercialization. The focus is on funding companies that have the potential for a broad commercial impact, but are at a stage where they have clearly identified the problems that need to be overcome in the research and development stages. The NSF is interested in assessing the value of the proposition, the team, the intellectual property strengths, and the core innovation for which funding is sought. One trait of the NSF s SBIR program that also adds to its success is its flexibility in progression through the program. Companies who have an NSF Phase II award are given additional support through a variety of supplemental funding opportunities. These all include the ability to reach out to strategic partners, while being supported by supplemental R&D funding from NSF, which furthers the commercialization of the Phase II-funded product. One example of such a supplemental funding program is the Technology Enhancement for Commercial Partnership (TECP). This program allows companies to seek $150,000 in funding to help forge strategic commercial partnerships. Phase IIB is another mechanism, in which the NSF provides matching funds to the grantee when there is clear market validation, occurring through 12

25 investments as a direct consequence of the research and development done during Phase II. In essence, the Phase IIB program seeks to catalyze commercialization by encouraging companies to look for private investments and partnerships, as well as generate product and technology licenses. The commercialization focus of the NSF has helped their grantees succeed because private investors can give insight and capital to the product s development. The SBIR program at the DOE is one of the larger programs, awarding over $100 million per year in grants (SBIR, 2013b). There is also a fairly significant overlap between the scope of the DOE s SBIR program and the EPA s, as the topic of clean energy is pertinent to both departments. However, the DOE SBIR program s large budget allows it to expand into the basic sciences area, in addition to its other primary concerns, such as nuclear security (U.S.D.O.E., 2013). These basic sciences include materials, life, and environmental sciences, which have a more indirect impact on energy policy. Like the EPA, the DOE also follows a three phase program, though the awards for Phase I and II funding are generally larger. In recent years, the DOE has shifted focus to commercialization by requiring evaluation of commercialization potential prior to Phase I or II funding. This change has pushed companies toward developing technologies that can be practically incorporated in consumer products. Similar to all agencies, the DoD SBIR program follows the same policies, enacted by the Small Business Administration (SBIR, 2013). Under this directive, the DoD utilizes the three phase commercialization process outlined earlier (See Section 2.3). As the largest program, the DoD SBIR is composed of ten programs including the Army, Navy, and Air Force (Ujvari, 2004). These programs conduct internal reviews of SBIR proposals, unlike the external review process of the EPA SBIR. This type of review process tends to take less time to conduct because the time needed to contact and select external reviewers is avoided (Brooks et. al., 2006). 13

26 To make the process even faster, the DoD SBIR program offers a fast track option to applying companies that have matching funds from outside investors (DoD, 2013). After Phase II proposals are accepted, the DoD offers a Phase II Enhancement/Plus program to funded companies. This program offers annual contracts which match up to $250,000 of non-sbir funds. One major element of the DoD SBIR program is its direct aid in the commercialization process. Typically, DoD acquisition programs and defense prime contractors are the initial consumer of the final technology (Ujvari, 2004). Therefore, the DoD helps fund the company from startup to its initial product sale. To achieve this, approximately $1 billion is set aside for the program, making it the highest funded SBIR program out of the 11 agencies (Rudolph, 2012). Another agency that participates in the federal SBIR program is the Department of Education (ED) (ED, 2013). The ED has SBIR programs at two offices within the agency: the Institute of Education Sciences (IES) and the Office of Special Education and Rehabilitative Services (OSERS). These offices work to fund the research and development of products that improve student outcomes in education delivery settings (e.g., schools through grade 16, afterschool programs), and to make teacher instructional practices more efficient (IES, 2013). Examples of funded product areas include learning software and web-based instruction technologies. The ED SBIR program utilizes video submission requirements for their funded businesses to showcase their technologies to potential stake-holders. Each SBIR program is unique to its host agency, to better fit the needs of that agency. However, each program aims to commercialize technologies, so many successful principles can still be adopted by other agencies. 2.6 Commercialization 14

27 An indicator of success is whether a company has commercialized its product. According to Udell and Hignite (Professors in the College of Business at Missouri State University) (2007), One of the ironies of the industrial innovation process is that high market potential is in itself a risk factor that must be reckoned with in launching a new product as new products place greater demands on firm resources (p.75). Commercialization failures can not only lead to a product failure, but also to the failure of a company. To check for potential market failures, companies hire external auditors to predict the future success of a product before it is distributed. External review is valuable for companies wishing to avoid potential sources of product failure. Unsuccessful commercialization of technology usually results from failures in one of three main areas: product, strategy, and experience-related factors (Udell and Hignite, 2007). Product failure refers to management neglecting to end a project when it is necessary or to correct a project when it is needed. Strategy based failures are caused by using an ineffective method when launching a product. Experience-related failures refer to management s inability to assess the success of commercializing a product in its initial phases of development. However, failures in these areas often result from the management s failure to pursue development and commercialization in an objective manner (p. 2). This means that entrepreneurs may not try to search for commercialization opportunities, which can be detrimental to product sales when putting a product out on the market. In order to commercialize their technology, entrepreneurs must have the right skill set. 2.7 Entrepreneurial Skills The success of a small company in the market is dependent on the entrepreneur behind the idea as much as it does on the idea itself. Jon P. Goodman (1994), Director of the 15

28 Entrepreneur Program at the University of Southern California, points out that, if there is not a strong entrepreneur to put an idea into play, it will most likely fail. Many scholars have identified key characteristics of good entrepreneurs. However, passion, deep-knowledge, and decision-making seem to be the most significant in defining the characteristics of successful entrepreneurs. It is crucial to look for signs of passion and self-determination in an entrepreneurial candidate. Goodman (1994) says that, when examining if there is passion, it is important to ask the following questions: What's the passion? Does the person speak with confidence, with indepth knowledge of the market and the industry? Has he or she conducted months and sometimes years of investigation, done due diligence, acted creatively? (p.29). All of these questions reflect the preparation and future success an entrepreneur may have. Imagination, defined as being able to develop alternative ideas when problems arise, is another important trait of an entrepreneur (Goodman, 1994). Successful entrepreneurs can have failures, but they interpret past unsuccessful projects as learning experiences. Those who view themselves negatively and make excuses tend not to move forward successfully. In contrast, those who make the most of what they have and create innovative ways to handle a situation have a higher chance of success. Entrepreneurs can choose to move forward by seeing every unexpected situation as a challenge rather than as a crisis, rendering them instrumental in moving the company toward success. 2.8 Previous Studies on EPA SBIR Program An Interactive Qualifying Project (IQP) done by WPI students (Brookes et al., 2006) focused on potential improvements to the SBIR program. This group interviewed 11 successful companies that had received EPA SBIR funding to gather information on their experiences in 16

29 developing a product. They focused on the technology continuum and how the SBIR program fit their assistance into this structure. This research also contained information and a comparison of the EPA s SBIR program to other government programs. The recommendations developed were that the amount of funding and commercialization assistance the EPA provides should be increased, and that the length of the proposal review process should be shortened. Foresight Science & Technology additionally distributed an electronic survey to companies funded through the EPA SBIR program from 2007 to Their survey was created to identify the general successes of the EPA SBIR participants with regard to awards and commercialization, details of commercialization, and details regarding Foresight Science & Technology as the commercialization support contractor. There were 36 respondents out of a potential 162, giving a 22.2% response rate. The researcher concluded that the majority of commercialization happened within three years of their Phase I award. It was determined that the primary reason for unsuccessfully commercializing technologies was technical immaturity and lack of funding. Lastly, it was concluded that companies appreciated direct interactions with mentors and the EPA s webinar series that highlight proposed technologies. Another survey done by a fellow with Association for the Advancement of Science assessed the EPA SBIR Phase II program. The study was conducted from on companies that were awarded funding from 1990 to The focus of the survey was to identify areas of improvement for the EPA SBIR program, specifically in how to better commercialize technologies. The findings of the report show that the EPA SBIR program is effective at assisting the development and commercialization of technologies in comparison to other SBIR programs. It was also found that the EPA s SBIR funding was critical to the potential success of proposed projects. Final recommendations were made to continue commercialization 17

30 data collection, possibly through an online survey, as well as to add structure to the peer review process. 2.9 Summary The SBIR program gives opportunities to small enterprises in a wide range of fields. The EPA, in particular, gives small technology companies a chance by giving them funding necessary to develop green commercial products. However, the EPA must choose which applicants to support. The goal of the SBIR program is to give government funding to companies to create a commercial product out of research. Therefore, the EPA must keep in mind that, just as the scientific merit of the product is important, both the entrepreneur behind the product as well as market demand are equally essential to achieving success. The EPA tries to select applicants who have the highest chance of having commercial success by evaluating their current status and proposal for further development. Past evaluations of the EPA s SBIR program have been conducted, but their focus was on the Phase III commercialization assistance and the program s effectiveness as a whole. The studies neglect how to better select companies by aligning the effect of the entrepreneur with the success of the company. The studies failed to make comparisons with private and government programs. The previous research also did not take into account the suggestions of the companies that did not receive Phase II funding that went through the SBIR program. Our methods were developed to address the gap in research and to make new recommendations to the EPA on how they can improve their SBIR program. 18

31 3. Methodology The goals of this project were to determine the traits of successful green technology entrepreneurs and make recommendations for the improvement of the EPA SBIR program s selection and commercialization assistance processes. We developed our methodology to identify: successful and unsuccessful EPA SBIR program proposals; trends among these ventures; and effective methods of selection and commercialization assistance for the EPA SBIR program and other federal SBIR programs. In this chapter we outline our approach that used both qualitative and quantitative research methods to achieve our goals. 3.1 Identifying EPA SBIR Companies to Target for Communication There were 413 awards granted by EPA SBIR funding in the last 10 years (SBIR 2013b). While receiving data from each company would be ideal, it is not feasible due to business failure and lack of willingness for correspondence. We needed to target a diverse, but realistic, number of companies with which to make contact. Outlined in sections and are the methods we used to identify companies Identifying Successful Business Ventures Funded by the EPA SBIR Initially, the EPA suggested that we select a sample of 10 SBIR program funded companies that experienced commercial success. Our team used archival records of green technology companies considered successful by the EPA to reach this number. The EPA (2013f) has a record of success stories as well as previous survey data collected by Foresight Sciences and Technology and the American Association for the Advancement of Science (AAAS). From these sources, we chose companies that most strongly exhibited characteristics of success in 19

32 commercialization. Success was defined by using information from commercialization expert Norton Kaplan of Foresight Sciences and Technology (See Appendix K for Interview Transcript). In order for a company to be successful, at least one of the following criteria had to be met: The company has returned a profit greater than the amount of money the company was awarded through the EPA s SBIR program Rights to produce the product or service have been bought by another company, where they were used independently or developed further The product or service has been widely utilized in its niche market or has a high market share. These criteria allowed our team to assess the success of green technology businesses in terms of commercialization and contribution to environmental protection Identifying Companies with Unsuccessful EPA SBIR Proposals To fully understand how success is achieved, we must also understand the challenges that SBIR funded businesses face. Information from SBIR funded companies that have had unsuccessful proposals gives us insight into these challenges. We identified a sample of 7 companies with unsuccessful SBIR proposals and compared them with successful business ventures. Companies with unsuccessful EPA SBIR proposals were defined as companies that were not able to get Phase II funding from the SBIR program after receiving Phase I funding. There are currently few data on unsuccessful companies; thus, to get valid information, our unsuccessful sample group consisted of principal investigators who have had both successful and unsuccessful Phase II EPA SBIR applications. We decided to use this as our sample, as 20

33 opposed to companies that have had only unsuccessful applications, because we believed that the principal investors would be more apt to talk with us about their unsuccessful proposal experiences. Additionally, since these entrepreneurs have had unsuccessful proposals in the past, they would have first-hand experiences with the challenges faced when commercializing their technologies. We asked these interviewees to contrast their past experiences with successful and unsuccessful Phase II applications, attempting to isolate the significant factors that contribute to a project s success. Through the use of the EPA s (2013f) online database, we narrowed the total population of funded companies to those with both successful and unsuccessful proposals. 3.2 Interviews with Company Representatives We interviewed representatives from 13 EPA SBIR funded businesses, and 2 non-sbir funded green technology companies to inquire about their experiences in the green technology market Interviews with Successful EPA SBIR Funded Businesses Representatives We contacted companies identified through the methods of section Our questions were designed to elicit responses regarding the company s process of becoming successful and their perception of the value of the contribution of the EPA SBIR program (See Appendix B for Interview Protocol). Open ended questions were used to gather information on past experiences in the green technology market. By interviewing representatives from multiple companies, we were able to make meaningful generalizations on small businesses that received EPA SBIR funding. 21